Month: January 2018

Homeownership is an important part of the American way of life. Today there are many opportunities in the housing market – including low mortgage rates and new homes that are built to fit your lifestyle – to find a home that is right for you. But market conditions can change, and these opportunities may not be around for long, so home buyers shouldn’t wait.

Low Interest Rates

Today’s low interest rates are helping home buyers find affordable housing options. But, it’s important to keep in mind that interest rates are sensitive to market forces and can change quickly. Even a slight rate increase can push monthly payments to the point that a buyer might miss out on their first choice for a new home.

How Interest Rates Affect Mortgage Payments:

Large Downpayments Not Necessary

While lenders are looking more closely at borrowers today than in recent years, there are options for purchasing your home without a 20% downpayment. For example, the Federal Housing Administration (FHA) offers loans to first-time home buyers with downpayments as low as 3.5%. However, these loans require mortgage insurance.

To ensure that the process goes smoothly, buyers should consider pre-qualifying for a mortgage and having financing in place before shopping for a new home. Buyers also may find that some home builders have arranged favorable financing for their customers or offer financial incentives.

Built to Fit Your Lifestyle

Designed to accommodate today’s busy lifestyles, new homes – including urban condos and single-family homes – feature open floor plans, flexible spaces, low-maintenance materials and other amenities that make them more appealing than ever before.

With energy costs near the top of consumer concerns, it’s good to know that new homes can be more energy efficient than ever. Innovative materials and construction techniques mean that today’s new homes are built to be much more energy efficient than homes constructed a generation ago. Not only can they be more affordable to operate, new homes also are significantly more resource efficient and environmentally friendly.

And in many areas, prospective home buyers who wish to live in age-qualified communities for those 55 and older will find a large selection of homes tailored to the evolving lifestyles of the baby boom generation.

Benefits for Home Owners

Homeownership also provides important benefits to owners.

Tax Benefits: For Home Owners Only

Unique tax benefits that apply only to housing help lower the cost of homeownership. Both mortgage interest and property taxes are deductible. Moreover, for married couples, profits of up to $500,000 on the sale of a principal residence ($250,000 for single taxpayers) are excluded from tax on capital gains.

The Advantage of Leveraging

Leveraging is another advantage of homeownership. A buyer can purchase a home and receive the full benefit of homeownership with a cash downpayment that is only a fraction of the total purchase price. This is called leveraging, and it makes the rate of return on a home purchase greater than on other purchases with the same value, such as stocks, where the buyer must put up the entire price.

Building Personal Resources

For most Americans, homeownership is a primary source of net worth and an important step in accumulating personal financial assets over the long term. For most families, home equity represents the largest share of net worth.

There Really is No Place Like Home

Although there are many positive financial aspects to homeownership, a home cannot be valued in monetary terms alone. Not only can homeownership be a stepping stone to greater financial well-being, it provides a permanent place to call home and great personal satisfaction.

Academic research also shows that homeownership provides a wide range of social benefits and strengthens the nation’s people and its communities.

Don’t Get Scammed: Find a Qualified Contractor

There are thousands of legitimate, ethical contractors in business around the country. Unfortunately, there are also scam artists looking to cheat you out of your money who pose as legitimate contractors. These “fly-by-night” operators often show up in communities impacted by natural disasters to try to scam distressed home owners into paying for shoddy repairs or work that they will never show up to perform.

Here are some warning signs to look out for:

Doesn’t have license and insurance. All professional contractors should be insured and able to show their certificate proving such insurance. Although all states do not require licensing, contractors in states requiring licenses should have it and be able to provide a copy.

Asks you to sign anything before you’ve hired them.If they want you to sign an “estimate” or “authorization” before you’ve made the decision to hire the contractor, look out. They may be trying to get you to sign what is an actual binding contract.

Doesn’t write contracts. Professionals have clear contracts that outline the job, process, the cost, and helps clarify how problems will be managed. If you don’t have a contract, you are not protected when something goes wrong. Don’t hire anyone who tells you a contract “won’t be necessary.”

Requires cash or payment in full before starting the job. Shady contractors demand cash and then run with the money. Many home owners have been stranded by paying in full up front. A deposit towards materials is common, but only pay it once you have a contract signed by both you and the contractor. It’s also suspect you’re asked to pay cash to a salesperson instead of a check or money order to a company.

Vastly underbids all other contractors. They may have the best price, but that doesn’t guarantee the best work. Such contractors may cut costs on quality, which can end up costing you more when you have to have the substandard work redone.

Offers “special” pricing.If you’re told you’ve been “chosen” as a demonstration project at a special, low price, or you’re told a low price is good only if you sign a contract today.

Cannot provide customer references. Professional contractors should have current references they can provide from current and past clients — and you should be able to reach those references, not just an answering machine.

Difficulty contacting the contractor. Professionals have a physical office, mailing address, phone, and email. They should respond to your queries in a timely manner. Make sure you can verify the contractor’s business address. If they only have a p.o. box, be wary.

Tells you to obtain the building or remodeling permits. Professional contractors go to the county or state offices and get permits for their work themselves. Asking the home owner to do it is a sign that they are not a legitimate contractor.

Your best bet is to take your time, do your research and choose someone you feel completely comfortable with. If your state requires contractors to be licensed, look them up on the state licensing website even if you’ve seen a piece of paper that looks like a license. Make sure they don’t have a record of consumer complaints lodged with your local Better Business Bureau. You can also visit your local home builders association: SouthWest Suburban Home Builders Association, www.sshba.com to find reputable contractors in the Southwest Suburbs of Chicago.

Settlement (or closing) is the process that passes ownership of a property from seller to purchaser. Going to settlement on a new home can be bewildering. Home buyers are usually required to sign a seemingly endless pile of documents, most of which are written in terminology not used outside of the housing industry and that can be complicated to understand.

Before You Go to Settlement

Before closing day, there are certain important items you should know about so that you can achieve the best possible terms for yourself in the transaction.

Ask a lender for a copy of the HUD pamphlet, “Buying Your Home: Settlement Costs and Helpful Information,” or access itHud Website. Most lenders are required to provide their loan applicants with a copy of this document under the Real Estate Settlement Procedures Act (RESPA), but you will be able to shop more wisely for settlement services if you have read the pamphlet before you apply. It provides a good description of the settlement process and explains most of the expenses you will encounter.

When you apply for a loan, the lender is required by law to provide you with a good faith estimate of settlement costs. Shortly before settlement, you will be told exactly how much you owe so that you can get a bank check. A personal check is generally not acceptable. In some instances, you may have money returned to you instead of having to pay.

Before you go to settlement, familiarize yourself with important settlement terms.

Important Settlement Terms

Appraisal Fee. An appraisal is an estimate of the fair market value of your home. Appraisals help both the lender and the buyer to determine if the sales price is consistent with the actual value. An appraiser inspects the house and the neighborhood and makes an estimate based on the price of comparable houses and other factors. The appraisal provides no guarantee that the property is free of defects. Lenders insist on an appraisal to see how much they could recover by selling your house if you default. The fee for this service may vary considerably depending on the specific characteristics of your house.

Attorney’s Fees. If the lender requires an attorney to draw up any of the settlement documents, you may be charged a fee – a flat amount or a percentage of the loan. If you hire a lawyer to assist with the settlement, you will have to pay an additional fee at or immediately following settlement.

Credit Report. The lender may charge a fee for investigating your credit history.

Earnest Money. Earnest money is a deposit paid to a seller to show you are serious about buying a house. Your receipt for this payment is called a binder. If you later buy the home, the earnest money is applied to your downpayment. If not, the earnest money is returned, minus expenses for processing. Be sure that you understand the refund procedures before you make a deposit.

Escrow Fees and Accounts. Escrow involves having a third party hold funds and/or documents until you and the seller complete settlement. Depending on the circumstances of your loan, you may be asked to make monthly payments to an escrow account after you purchase your home. Money in the account may be used to pay taxes, insurance, and any other regular assessments as they fall due. Such accounts serve a similar purpose to withholding income tax from your paycheck; by putting aside money each month, you avoid large annual or semiannual payments. You may be charged a fee for the service. In some states, escrow accounts draw interest.

Sometimes, escrow agents handle settlements. Rather than you and the lender meeting to sign all of the documents and transfer money, the agent works with you and the lender separately to ensure that everything is done properly. Once again, a fee is required for this service.

Loan Origination Fee. A lender will charge a fee for the cost of processing the loan, usually calculated as percentage of the loan amount.

Loan Discount (Points). The largest of your settlement cost may be the “points” lenders require to make the yield on your loan more profitable. A point is one percent on your loan amount. If you are borrowing $50,000, one point equals $500. Points are tax deductible if they are paid separately and not deducted from the loan amount. For VA loans, you can be charged a maximum of one point, but the number of points can be higher for FHA and conventional loans.

On a 30-year loan, each point that you pay reduces your interest rate by roughly 1/8 of a percent. You may be faced with a choice between two mortgages in which one has lower monthly payments but involves paying more points up front. Annual percentage rate calculation include buyers’ points, so ask for the APR to help you make your assessment. Keep in mind that an APR is calculated on the basis of the total life of the loan. For a 30-year loan, the APR is a 30-year composite figure. If you sell your new home after a few years, the average annual cost of your points will be much higher than is reflected in the APR. If you plan to move soon, you might be better off with a loan that has a slightly higher rate but fewer points.

Property Survey Fee. You may have to pay to have your lot surveyed, especially if there is a question about the boundaries. The cost will depend on the complexity of the survey.

Recording Fee. Because the title is changing hands, the transaction must be recorded with your city, county, or other appropriate branch of government. The fee covers administrative costs.

State and Local Transfer Taxes. Some jurisdictions levy taxes on the transfer of property or on real estate loans.

Settlement Costs Between Buyer and Seller. Your builder may have already paid the annual property taxes on your new home or “filled up your fuel tank.” When the title changes hands, you must reimburse the builder for a proportional share of the taxes, any fuel that remains in the tank, and any other prepaid costs.

Title Search and Insurance. A title search involves having someone look through public records to see if anyone else has a claim to your property. A lender does not want to lend you money only to learn in the event of foreclosure that somebody other than you has a prior claim to the property.

You will normally be required to purchase lenders’ title insurance to guard against a faulty title search as well as hazards that even the most thorough search will not reveal – such as a forged deed that does not transfer title, a claim by a previously undisclosed relative of a former owner, or a mistake in the records. For a one-time premium at closing, title insurance will clear up title problems, pay the lender’s legal expenses for defending against an attack on title, or pay claims on property the lender may lose.

Lenders’ title insurance does not compensate buyers for any legal expenses they might incur, or the value of property they might lose. A separate owners’ title insurance is available to safeguard the buyer. Whether the seller or the buyer pays for owners’ title insurance depends on local custom.

This list of settlement terms is not all-inclusive. You may also be charged fees for notarizing documents and other miscellaneous items.

Key Settlement Documents

Once all the forms have been signed, you can move into your new home. But before ending the settlement session, make sure that you have received or will be sent copies of all the important documents, including:

· Sales contract

· Land survey

· Warranties and instruction booklets from manufacturers for equipment in the house

· All tax payment receipts

· Certificate of occupancy (required in some areas)

· Certificates from the health department for plumbing and sewer installations (required in most areas)

· Other certificates of code compliance (required in most areas)

· All insurance policies (some might be sent later after they have been properly endorsed)

· The note and deed to your property (which will probably be mailed to you after being placed on record in your local registry of deeds office)

· Home maintenance and care instructions from your builder

If you are shopping for a new home, how can you be sure that it was built so that it does not cause health or safety problems for the members of your household?

The answer can be given in two words: building codes.

A building code sets forth requirements to protect public health, safety and general welfare as they relate to construction and the occupancy of a building. These codes include specific requirements for building materials, fire protection, structural design, light and ventilation, heating and cooling, sanitary facilities and energy conservation.

There is no national building code enforced by the federal government. Different areas of the country have different construction methods; the techniques used to build houses in a cold climate will be different than those used in a warm climate. Most construction in the United States is regulated at the local level. Only a few municipalities (mostly major cities) write and revise their own codes. Some states have mandatory statewide building codes.

Building homes is a complicated process, so building codes are often long and complicated. To prevent each local jurisdiction from having to develop its own complicated codes from scratch, there are several major model code organizations that draft codes that local areas can adopt.

The local area has total authority for adoption and enforcement. It may adopt a model code as is, adopt only specific portions, or add some of its own changes.

Code writing is a dynamic process, involving constant interaction between the public and private sectors of the construction industry. Federal, state and local governments and individuals involved in code writing and revision represent the views of labor, management, manufacturers and trade associations, contributing much time and technical expertise to the process.

Building codes do not deal with issues such as the quality of the workmanship and materials. Consumers are protected in these areas through their warranties.

For instance, if a building code inspector is examining a home and sees a gouge in a kitchen floor or countertop, that would not be an item affecting health or safety, and as such would not be covered by a building code. However, it would be covered in the warranty on workmanship and materials.

Before You Move In: The New Home Walk-Through

Before you go to settlement on your purchase of a newly constructed home, you and your builder will do a walk-through to conduct a final inspection.

This walk-through provides an opportunity to spot items which may need to be corrected or adjusted, learn about the way your new home works and ask questions about anything you don’t understand.

Often, a builder will use the walk-through to educate buyers about:

The operation of the house’s components.

The buyer’s responsibilities for maintenance and upkeep.

Warranty coverage and procedures.

The larger community in which the home is located.

Operation of Home Components

When you buy a new appliance or piece of equipment, such as a printer or a washing machine, you usually have to read the instructions before you understand how to use all of the features. With a new house, you will receive a stack of instruction booklets all at once. It helps if someone takes the time to show you how to operate all of the kitchen appliances, heating and cooling systems, water heater and other features. Such an orientation is particularly useful because people often are so busy during a move that they have trouble finding time to carefully read instruction booklets.

Maintenance Responsibilities

Part of your walk-through will be learning about maintenance and upkeep responsibilities. Most new homes come with a one-year warranty on workmanship and materials. However, such warranties do not cover problems that develop because of failure to perform required maintenance. Many builders provide a booklet explaining common upkeep responsibilities of new home owners and how to perform them.

Should a warranted problem arise after you move in, the builder is likely to have a set of warranty service procedures to follow. Except in emergencies, requests for service should be in writing. This helps to ensure that everyone clearly understands the service to be performed.

Builder Visits During the Year

Many builders schedule two visits during the first year — one near the beginning and the other near the end — to make necessary adjustments and to perform work of a non-emergency nature. Don’t expect a builder to rush out immediately for a problem such as a nail pop in your drywall. Such problems occur because of the natural settling of the house and are best addressed in one visit near the end of the first year.

Your Inspection Checklist

Create a checklist when inspecting the house. The list should include everything that needs attention, and you and your builder should agree to a timetable for repairs. Builders prefer to remedy problems before you move in because it is easier to work in an empty house. Some items may have to be corrected after move-in. For instance, if your walk-through is in the winter, your builder may have to delay landscaping adjustments until spring.

It is important that you be thorough and observant during the walk-through. Examine all surfaces of counters, fixtures, floors and walls for possible damage carefully. Sometimes disputes arise because a buyer may discover a gouge in a counter top after move-in, and there is no way to prove whether it was caused by the builder’s workers or the buyer’s movers. Many builders ask their buyers to sign a form at the walk-through stating that all surfaces have been inspected and that there is no damage other than what has been noted on the walk-through checklist.

Ask a lot of questions during the walk-through and take notes on the answers. Don’t worry about asking too many questions. That is how you learn. It is important to view the walk-through as a positive learning experience that will enhance the enjoyment of your new home.